Should America retire the penny and the nickel?

I am agnostic on this question, but Jay L. Zagorsky presents the case for no:

First of all, the Mint creates coins in response to demand, and demand for small-denomination coins is soaring. Over the past decade, the Mint roughly doubled the number of pennies and nickels it shipped. Both coins enjoy widespread popular support in opinion polls as well.

It’s true that it costs more to mint these two coins than they are worth. In 2017, it cost the U.S. Mint 1.8 cents to make each penny and 6.6 cents for each nickel. Overall, however, the Mint is a profit machine. In 2017, it earned almost $400 million in profits producing circulating coins. For every dollar’s worth of coins it shipped out, the Mint made 45 cents. That is a profit margin many business owners dream about.

So, think of pennies and nickels as the Mint’s loss leader. They help create demand for more profitable coins in the cash economy. Eliminating pennies and nickels could make people think coins overall aren’t useful. And if we stop using all coins, the Mint will lose $400 million of profit a year.

…Stores and other businesses bothered by small-denomination coins can set prices so the final cost ends up in round numbers that eliminate using pennies or nickels. Food trucks and restaurants have used this kind of flat pricing to speed up checking out.

At the WSJ link, Henry Aaron argues the other side of the issue.  I should note that I have acted privately to abolish pennies (and occasionally nickels) from my own life.  Think of it as unilateral privatization, quite literally an idea for the trash and gutter.


Well there you have it. Baller economists deal only in Roosevelts and higher.

I want to say “yes” (let’s abolish pennies and nickels) but what about the children?

Abolish them, too.

The sensible question should be why has the government abandoned its responsibility to make sure the nickel is worth something. We laugh at Zimbabwe or Venezuela, but the fact is we are only doing what they are doing but slower.

Will many people here live to see the 1 million dollar note in common circulation? I used to think that was a pleasure for our grandchildren but now I look at Obama's deficits and Trump's deficits and I am not so sure.

Obama & Trump? The US Congress and the Federal Reserve have much more responsibility.

Well I am in a generous mood. There is no need to be tight fisted here. After all, there is plenty of blame to go around.

The fact is that one of the core jobs of the government is defending the currency. We have got Zimbabwe-(very)-lite instead. Not good.

Apparently Zimbabwe's peak inflation rate was 500,000,000,000%. We may be doing the "same thing" but fortunately the Earth getting destroyed by the dying sun when it becomes a gas giant will bail us out long before we experience a similar level of inflation to Zimbabwe.

No no no, you're on the wrong site, we're just supposed to make token gestures about government being bad and debasing the currency and blah blah blah. There's no need to appeal to reality.

Because people have excessive trust in Government money so that in a down turn rather than trying to get rid of it quickly (like they would with private bank issued money) people try to hold more of it and so to prevent people from holding too much it much of it in down turns its value must be inflated away at some rate.

Careful Floccina, you are bringing facts and logic to a crowd that doesn't always understand them.

en las palabras de Bill Murray nuestro mejor actor vivo
"ve a ver a John Prine el próximo mes te animará. "
"ve a ver a John Prine el próximo mes te animará"

What, exactly, is the harm caused by 2% annual inflation?

The profit margin calculation can't be right, though. Coins also get sent back after a few years for wear and tear, and the mint needs to buy them at par value.

Well, then you will be shocked to hear that worn out bills are bought back at par value too. Depending on perspective, using precisely the same par value that they were sold for.

Makes one wonder if double entry bookkeeping is really that obscure -

In other words, the books balance at that par value level. Though admittedly by ignoring the additional effect of seignorage. Both for the slightly more subtle perspective for notes - or for the more straightforward aspect involving coins -

I think the whole concept of a "profit margin" for The Mint is someone either a) being insultingly coy, or b) pushing back on the "pennies cost more to create than they are worth" meme.

Creating money is a government function, and the coinage should be made without regard to whether each individual piece is "worth" what it costs.

There's a good argument that we should get rid of the penny because having the penny is too costly to the economy as a whole, both by having the Mint produce it and merchants/consumers having to deal with them. I'd probably even buy that argument. But it shouldn't depend on how much each individual penny costs to make.

Agreed. It's weird special pleading to argue that unlike every other aspect of its operations, this one tiny corner of the government should turn a profit.

Pennies and nickels waste over 4.4 zillion man-hours of time in the USA every single year.

They should very obviously be abolished for that reason alone.

Throw in the fact that the Fed loses money every time it makes one, and it's beyond a no-brainer. [So, naturally Tyler is "agnostic."]

But the idea that we need to keep them... or else people will conclude that all cash is useless... and then all money will be abandoned... and then the mint will be abolished... and the mint isn't really a thing that provides services to citizens, it is in fact a profit-making machine for the Feds.... and then the Feds will have to do without a profit that represents one-ten-thousandth of the Federal Budget.... that is a very, very special kind of stupid.

Stupid enough for Tyler to post.

Good thing the smart ones like you are here to help us survive the stupidity of Tyler Cowen. And you do it for free!

The government's job is to provide a reliable and stable medium of exchange, not to subsidize its production.

No, the government's job is to investigate train and plane wrecks, monitor the accuracy of gasoline pumps and guarantee the integrity of big lotteries. The people themselves can decide what money will be. I vote for grizzly teeth.

Agreed. After the Mint will lose $400 million comment, I was expecting the follow-up argument to be that if people don't find coins useful at all then we'll loose the thousands of jobs supported by the Mint.

Creating money is not a government function, coining money is. Paper notes are unconstitutional. Prior to 1857, there was no need for even for government coins because people traded Mexican silver coins in the United States.

"Both coins enjoy widespread popular support in opinion polls as well."

this made me laugh

Yes, if this is the best collection of arguments for small coins, then elimination them seems like a no brainer.

The "loss leader" theory seems entirely speculation. Why would small coins drive sales of larger coins? And why is the treasury making a small profit an important goal anyway? At least this profit should be weighed against the cost of using small coins in the economy.

It's a pretty terrible argument. The treasury could eliminated the penny and replace with the current iteration of the dollar. Pass a Federal law allowing businesses to round to the nearest nickel. Then companies could use the existing change slots by swapping the penny out for the dollar. And still keep paper dollars as needed.

It's doubtful if Treasury profits would be hurt. After all they are losing money on each penny.

The 1 and 2 cent coins were abolished in Australia.

In 1992.

Don't pass any more Federal laws, there are already too many.

Pennies used to be a bane of my existence, filling up an immense jar with them that proved almost too heavy to lift when I finally got around to cashing them in. But now I mostly pay with a credit card for everything and I'm less overwhelmed by pennies.

Thanks for sharing.

It's easier than that, just refuse to accept pennies when you get change back (leave them on the counter) and only collect higher coins in the jar. A glass Snapple bottle holds about $70 worth of those coins, without pennies taking up space.

"It’s easier than that, just refuse to accept pennies when you get change back (leave them on the counter) "

I suspect that doing so upsets cashiers. You are putting them into the position of a menial servant, cleaning up your refuse. I would recommend taking a moment to smile at them and tell them: Just keep the pennies, it will help to balance your drawer at the end of the shift."

A lot of places have a jar or bowl for spare change. Or a tip jar. But they don't have to be tip jars, they're often just a place for people to drop their spare change.

I’m in the same boat as Steve – I pay with credit card much more than I used to and this rarely get change – and I would wager that most people who comment here could say the same.

For that reason, I think the story focuses on entirely the wrong thing: why on earth as the man for pennies and nickels skyrocketed in recent years? Who is using more pennies now than they used to?

"why on earth as the man for pennies and nickels skyrocketed in recent years? "

Everyone is using credit cards most of the time. On the times you don't, you bring the change home. In the past, the change would have gone back in your pocket to be used the next day. But now, most people don't carry change anymore, because they don't use it on a daily basis. So the flow is lower, but there's much lower return. The pennies and nickels are accumulating in houses.

I roll up my accumulated change at the end of every month and deposit it in my bank account. Usually comes to c. 30-40$ a month, though most of that is quarters.

I don't use credit cards except when purchasing on the net. Cash is printed freedom! Nobody knows what I buy.

Same here with the credit cards, yet with change counting machines in my bank and even one at my local grocery store that will spit out an Amazon gift card, it is easier than ever to take care of those coins.

I'm with Sailor and now go months and months between the few times a year I actually use a coin. When I have to use a coin I just drop the change in the tip jar at Dunkin Donuts.

GMU econ dept. faculty member throws money away is not the sort of insight one finds in the mainstream press, that is for sure.

But why not liberate pennies and nickels like books?

Or, considering how dear cash transfers are to some, why not deposit spare change in a donation box instead of throwing it away? After all, if an Ipad is worth giving away, money should be equally acceptable.

My suggestion: 1) stop producing the Lincoln penny; 2) stop producing the Jefferson nickel; 3)make a new Lincoln nickel out of the same material and size as the penny; 4) re-value the old/existing pennies to be .005; 5) Melt down all of the $1 coins being stored; 6) Stop printing $2 bills; 7) Stop printing the $20. Start printing a $25.

Wow, I had no idea that $2 bills are still being produced.

Yeah, no kidding.

And heck, if you want to get people to stop using dollar bills as much, circulate more $2 bills! We'll need far fewer $1 bills for transactions between $2 and $5 (and $7 and $10, and $12 and $15...)

Way to make more problems while solving a non-problem.

You must be an academic. That's an amazingly complicated solution to a very simple problem. My suggestion: (1) stop producing the Lincoln penny.

I'm shocked to see this argument presented uncritically on a blog named MARGINAL revolution. We should keep the penny even though it is a net loss because on the whole the mint is profitable? Why does it matter in the slightest that the mint is overall profitable producing the penny still costs the same amount of money.

The suggestion they are some kind of loss leader is even more non-sensical. First, the idea that people would otherwise abandon cash but then see a penny and think "Ohh, look at all those tiny coins I can carry around I guess I'll use more cash or US denominated cash" doesn't pass the smell test.

Second, while many other countries use our currency, we are still the largest consumer of the Mint's products so far from "making a profit" the US people as a whole are just wasting their money using cash if they have some cheaper alternative.


If people replaced their use of coins with gold or foreign currency, the argument would be valid. They won't.

There are good reasons to stop making the penny and maybe the nickel or dime, but the cost of production is not one of them. As I have told many people, the cost of producing and issuing a credit card is likely higher than many of the charges that people will make, for example an hour of parking. But the card can be used over an over for purchases, and that it the value. Similarly, the value of coins is to repeatedly facilitate transactions, which is why we don't use cupcakes as currency.

So, the value of coins (and bills for that matter) is to ease transaction costs. I never use any coin less than a quarter, and rarely use quarters. So, my guess is that like Tyler, most of us never use coins after receiving them and so the banks just keep ordering them. If stores said that all transactions (not prices of individual goods) would round to the nearest nickel, I can't believe that people would complain, and there would be a different equilibrium that involves fewer coins.

This is a very good point - a penny that is spent 2 times contributes to GDP more than it costs!

What an absurd argument--that dropping the penny would result in the end of coins generally. This is empirically false--see e.g. New Zealand.

Or, a bit closer to home and more recently, Canada.

The end of the penny up here was, more than any other Canadian policy decision, the moment when Canada became truly civilized. Even better than smoking bans and lead paint regulations. It's impossible to imagine ever going back to that dark age from which we have finally emerged.

If firms would stop pricing products that require change in pennies and nickels, then we wouldn't need the darn things. I usually don't carry change, so every time I buy a product, no matter how cheap, I receive pennies and nickels as change. It's annoying. I collect the pennies and nickels in a bag until my nephew or godson asks if he can have them, which he takes to the local supermarket and has them rolled in the machine near the entrance. Then I start over. I suppose my nephew and godson appreciate the pennies and nickels, but it's absurd. Of course, firms price products to manipulate the consumer. Thus, a product is priced at $1.99, not $2.00. That too is absurd. No, not the firms' manipulation, but that consumers are so easily manipulated. Pennies and nickels are the price we pay for stupid consumers.

Sales tax makes price irrelevant.

So firms are too stupid to set a price that, when the sales tax is added, the total price is a multiple of five? What are quants for if not to make life simpler. [No, I don't believe it takes a quant to satisfy this equation, but it may for some readers of this blog.]

I found Aaron's argument to be much stronger. I'm surprised Tyler didn't excerpt both. He addresses all of Zagorsky's points.

Emulate NZ coin currency? Nah, that would too rational and common sense. It would never fly in the US. (BTW, for others who don't know, NZ has the following coins: 10c, 20c, 50c, $1, $2). Really, though, our mint can't even get the populace to use a $1 coin on a regular basis. When was the last time you got a $1 coin in change? Or used one to buy something?

Getting people to use dollar coins is easy: stop making freaking dollar bills! But for whatever reason, this is not within the realm of possibility in American politics.

The real reason we don't adopt dollar coins is because dollar bills are that much superior from a consumer's point of view. It only ever works around the world because other countries' printing authorities simply decree the removal of 1-unit notes, regardless of what the populace might prefer. People adjust, but it's really no fun having to carry around all the extra weight.

As an American having lived in Britain for a number of years, I prefer the coins. Yes, they are heavier but easier to deal with than a wad of small bills. They also enable more convenient coin operated payment systems, and avoid the costs associated with rapid wear of small bills (I think a dollar lasts about six weeks?).

I doubt it's true that large value coins were imposed against the will of the people. Do you have any sources for that?

Not that I think this is a big deal... Paper dollars are not keeping me up at night.

I'm not saying it was imposed against the will of the people, but that the will of the people was not part of the decision calculus. However, I definitely don't remember a popular push for abolishment of 1-unit notes elsewhere.

And I'll gladly struggle with a bill-accepting machine if it means I carry around less weight. But now that's just one person's opinion vs. another's.

Who carries their cash in a wad?

High-value coinage found in non-US countries is horrible! I hate them! Sure, if you really want to get rid of the penny, go ahead (although some small local sales taxes could have a quantum problem). But please let's keep everything over $1 on paper! The average American's pants sag too low already.

(I think a dollar lasts about six weeks?).

Huh? in my wallet the series on $1: 2013 2013 2009 2013 2009 2013 2009

So 3 of 7 are over 5 years old

And none made in the past year

Agreed. I never carry around coins because there is no good way to carry them. A $1 bill fits nicely in a wallet. Getting rid of them moves the smallest denomination I am willing to deal with up to $5. Yuck.

They could do it if they'd quit making them the same size as quarters each time they try.

> demand for small-denomination coins is soaring

I started to throw away pennies because the hassle of carrying them is much larger than their value. So the number of pennies needed to support my transactions has increased. "Demand" is soaring.

I'm with Jeremy. I throw my pennies in the trash and have even started throwing my nickels away. It seems ridiculous but I don't like clutter. That's what low-value coins have become: clutter.

I'd like to see more explanation for the "soaring demand" for pennies & nickels.

Why not throw them in the charity or tip cups at the store you get them from in the first place? Or simply leave them on the counter for the next purchaser who needs one?

Or even on the curb, someone will pick them up. Throwing them away? Weak.

Just round everything up to dollars and put it all on plastic. What is money at this point? Half-seriously, why do we bother with taxes anymore?

The US used to have a half-cent coin. It discontinued it when it had a value of about a dime in today's money.
I throw away (or tip-jar) everything but quarters, which I use for parking. Never get those dollar coins in change, but I'd like to.

If pennies are a loss leader that makes the mint money, why not bring back the half cent coin? Think of the profits then!

Also, is anyone really surprised that they can turn a profit while they LITERALLY PRINT MONEY. Quarters cost less than a quarter to make, but they still get to (have to) charge a quarter for them. Hundred dollar bills sell for a hundred dollars!

They should make another trillion dollar bill. Then they will be set.

As long as we keep the dollar bill, I'm cool with whatever happens to the penny and nickel. I really hate having to lug around a significant weight in coin just to have enough small denominations in other countries, and I love how the dollar bill (as opposed to the dollar coin) solves that problem handily.

(This is something Switzerland got way wrong. They use giant, heavy five franc coins, no bills/notes.)

Canada has eliminated the penny, without many problems. The final price just gets rounded to the nearest 5 cents.

But eliminating the nickel seems much more problematic, if quarters continue to exist. If the price gets rounded to the nearest 10 cents, how do you pay with a quarter? Or should the price be rounded to the nearest 25 cents, in which case dimes don't work well?

So if the nickel goes, the quarter should go as well. And maybe a 20 cent coin should be introduced, as well as a more popular (and smaller) 50 cent coin.

Yep. As a Canadian, the elimination of the penny went exactly as I expected. It's more convenient, there are no visible downsides, and somehow, people in Canada still use coins!

A good Youtube summary here:

The American system was always slightly strange. Matching a logarithmic scale to base 10 gives you natural points of value of 1, 2, 5, 10, 20, 50, and so on. The quarter, at 25, is a reasonable point for the 20, no further away from the pure logarithmic value than 20, so it's fine.

If we keep the penny, we should have a 2 cent coin. We should, in any case, have 50 cent and 2 dollar coins/bills in greater circulation.

Actually, since we're talking about 20 lowest units to the dollar, we really should just accept it and bring back the shilling.

There was a strong move to get people to move to the dollar coin around 20 years ago, but they kept the US dollar bill.

Get rid of dollar bill, get rid of penny, introduce dollar coin, everyone is happy.

Ive few good things to say about Stephen Harper but him getting rid of the penny I applaud him for. Though I still have family members that are convinced its a scam.

A better solution would be to retire the U.S. dollar. What's needed are New Dollars, such that ten old dollars can be exchanged for one new dollar.

Or perhaps we should look ahead, and create the New Dollars at one-hundred-to-one?

Should I point out the obvious and say that it does no good to eliminate the penny & nickel but keep the dime? The only thing worse than too many denominations of money would be denominations that aren’t divisible by each other (dime & quarter) nor by any smaller denominations like a nickel.

I’m for getting rid of all 3 - penny, nickel, and dime - but that’s just my bourgeois opinion.

Get rid of coins altogether and introduce a half-dollar (and quarter-dollar?) bill?

I'm for that too. I think you need to keep the nickel if you're keeping dimes, but if we just got rid of nickels, pennies, and dimes then we could just round all prices to the nearest quarter amount.

The only downside for retailers is that they couldn't do the psychological trick of pricing stuff at "$2.99" instead of $3.00 anymore (and so forth).

You want the smallest denomination to be worth more than the involved time and transaction costs as judged by the people whose time is worth the least. If it is not, then abolishing the smallest denomination will harm the poorest people.

With the penny, it is obvious that it is worth the time and transaction costs for the poorest people, since people regularly pick up pennies and do tasks on Mechanical Turk for similar amounts of money. Therefore abolishing the penny would be harmful. If anything, we need an even smaller denomination.

I'd argue that keeping the penny hurts the poor. The poor are more likely to conduct transactions in cash. As a result, they come into possession of more pennies. They also use more coin-operated services, such as buses and laundromats. Those services don't accept pennies. So the poor are forced to take coins that provide them with little value.

I just returned from a vacation in New Zealand.

Their currency is so much better.

The small change is 10 cent, 20 cent, and 50 cent. That is all. No pennies or nickles. And they have gone decimalization, while we still do the Spanish pieces of eight with quarters.

There is a one dollar coin and a two dollar coin. The smallest paper bill is $5.

Better yet, the bills are not paper but a type of plastic; more durable and waterproof.

Each bill is a different color to reduce mistakes. There are strong anti-counterfeiting features on the bills.

For currency as for infrastructure, the US is behind the curve. What happened to US innovation and experimentation?

On the other hand Britain has EIGHT coins in common circulation: 1,2,5,10,20, and 50p, plus 1 and 2 pound.

I like the pound coins, but the number of small coins is ridiculous.

Read both opinions in the WSJ yesterday.

My comment is: whatever.

I use actual cash about every 6 months.
The last time was a vacation in México for 10 days.
The next predicted time will be an upcoming vacation to España in the Fall.

C'mon, if you are going to talk about "demand" for pennies being high, the fact that they are not being priced at marginal cost is pretty important.

Pennies are not accepted at most vending machines so the "loss leader" theory is dubious. Why should the government subsidize increasingly useless coinage? Let government-issued coins compete with credit cards, smart cards, and other payment systems.

This site is full of rich people. I pick up pennies and tremble with excitement when I see a nickel.

To avoid bad luck, I'd urge only picking up pennies that are heads-up

Dump the penny please.

You shouldn't be throwing away pennies Mr. Cowan, you should be picking them up. How long does it take to pick up a penny? Two seconds, three? That works out $12-$18 per hour. Many people work full-time jobs for less than that. And of course it's worth it for just about everyone to pick up a nickel, unless you're too good for $90 an hour.

And what's with all the people burdened by the great weight of all of their change? If you actually spend coins instead of just receiving them back you should never have more than one dollar in coins total. It's really not that hard people.

My apologies for the misspelling, Mr. Cowen.

The "profit" of minting coins ( is at the expense of devaluing the overall money supply.
The US seems to be an outlier in this; most national mints charge their operating costs as an expense to the treasury, and issue coins the same way that bills are (properly, ie, not increasing money supply).

The situation leads to some ridiculous incentives for the US Mint, for example, selling dollar coins at par and eating the overnight shipping cost and credit card merchant fees, as was done a few years ago.

"First of all, the Mint creates coins in response to demand, and demand for small-denomination coins is soaring. Over the past decade, the Mint roughly doubled the number of pennies and nickels it shipped."

This does not hold, I'm not certain how coin demand is created but they're not a standard market good. In fact, I suspect demand is primarily created by retailers (via banks) insisting they have fixed ratios of each coin in their tills.

"I should note that I have acted privately to abolish pennies (and occasionally nickels) from my own life. Think of it as unilateral privatization, quite literally an idea for the trash and gutter."

This is probably one of the sources of the new demand.

If consumers care so little for small coins that they discard them, lose them, don't carry them on their persons, or don't fish for them in their wallets/purses then they don't have the pennies or nickels available at the point of purchase.

For instance, if something costs 52 cents the exact change would be two quarters and two pennies and the retailer gains 2 pennies.

But if the consumer doesn't carry small change they need to round up to either 55 or even 60 cents, and the retailer needs to pay back 3 pennies and possible a nickel.

This exchange would seem to be the likely source of the "new demand".

I hate people who fish for coins in their purse to try to make exact change. They are always in the express line in the supermarket, and they are always little old ladies who can neither see nor grasp efficiently.

On the other hand, I knew a statistician who kept four pennies in his pocket so he would never need to get pennies for change.

Even better: require that ALL sales taxes be included in the price tag!

Then we can safely abolish the penny without having to worry about rounding issues when making change after a purchase.

Comments for this post are closed